Weakness on Year-End Consolidation

Elena
20 Dec, 2005
New York City

Strong quarterly results from Morgan Stanley and better-than-expected wholesale inflation data supported market in early going, raising hopes for more buying but investors locked in before-year-end gains and stocks turned mixed, dragged by weak tech stocks, General Motors drop, and oil prices rise.

U.S. MARKET AVERAGES

U.S. stock markets advanced at opening, supported by better-than-expected wholesale inflation data and strong earnings from Morgan Stanley. Traders hoped the inflation data and strong quarterly results from Morgan Stanley would encourage more buying but the early trading followed what''s become a daily pattern on Wall Street, with large-caps leading, tech stocks falling and investors consolidating gains before year''s end.

U.S. stocks turned mixed as General Motors shares dropped, crude oil prices edged up, and investors sold off pharmaceutical issues, following strong gains in the sector on Monday. But financial stocks were strong, helped by a good earnings report from Morgan Stanley.

The Labor Department reported that November producer prices fell 0.7% on lower energy prices, vs. expectations of a 0.5% drop. PPI rose just 0.1%, better than the 0.2% hike expected on Wall Street. With inflation remaining relatively tame, the Federal Reserve is considered more likely to halt its current regime of rate hikes.

A jump in home construction last month helped ease worries about the cooling housing market. Housing starts rose to an annualized rate of 2.123 million homes in November, up from October''s rate of 2.014, according to the Commerce Department.

The technology sector was the most notable decliner in morning trading but the semiconductor sector rebounded from early declines to drive 1.2% into positive territory. The airline sector which came off a multi-month high on Monday, continued to fall during Tuesday''s trading to post a decline of 1.6%, paced by a 3.2% decline in Continental ((CAL)) and a 2.8% drop in AMR ((AMR)).

The HMO sector climbed 1.4%, reversing most of Monday's decline. While much of technology remains in negative territory, the semiconductor sector has overcome early trepidation to drive 1.2% into positive territory.

AMD ((AMD)) climbed steadily, pushing above a 3-week trading range to set a new 52-week high. Capital One Financial ((COF)) reached a new high. NEON Systems ((NEON)) and Town And Country Trust ((TCT)) set fresh peaks on their respective deals to be acquired.

GM ((GM)) was the most notable decliner, reaching a new 52-week low. SeraCare ((SRLS)) broke to a fresh low after it announced the start of an internal review of its finances. RadioShack ((RSH)) extended losses, setting a new low.

In earnings news, Morgan Stanley rose 2% on Q4 earnings which surpassed Wall Street''s forecasts by 34 cents per share before a one-time tax benefit. The bank also said it's buying the Goldfish credit card operations from U.K. bank Lloyds TSB for $1.76 billion.

A few merger deals stand out today. Japan''s Mori Trust confirmed a report that it''s in talks to sell a central Tokyo property to American International Group Inc for more than $3.4 billion.

Also on the mergers-and-acquisitions front Tyco International Ltd is near a deal to sell its plastics unit to private equity group Apollo Advisers for around $1 billion, The Wall Street Journal reported.

In late morning trading, the Dow Jones industrial average rose 9.12, or 0.08%.The Standard & Poor''s 500 index rose 0.82, or 0.07%, and the Nasdaq composite index fell 1.39, or 0.06%.

Bonds moved lower, with the yield on the 10-year Treasury note rising to 4.46% from 4.44% late Monday

ECONOMIC NEWS

The Department of Commerce released its report on housing starts in the month of November on Tuesday, showing that housing starts rose unexpectedly. The report also showed a notable increase in building permits.

The report said that housing starts rose 5.3 percent to a seasonally adjusted annual rate of 2.123 million units in November from a revised 2.017 million unit rate in October. The increase came as a surprise to economists, who had expected starts to fall to a 2 million unit rate.

The increase in housing starts reflected growth in all regions but the South, with double-digit growth in the Northeast, the Midwest, and the West more than offsetting a 1.3 percent drop in housing starts in the South.

Producer prices fell more than expected in the month of November, according to a report from the Department of Labor, reflecting a significant decrease in energy prices. The report also showed that core prices rose less than expected.

The Labor Dept. said that its producer price index (PPI), a key gauge of wholesale inflation, fell 0.7 percent in November after rising 0.7 percent in October. Economists had been expecting the index to fall by a more modest 0.5 percent.

As mentioned above, the drop by the PPI was largely due to a steep drop in energy prices, which fell 4.0 percent in November after increasing by 4.1 percent in October. The Labor Dept. said that residential natural gas prices led the downturn in energy prices.

The report also showed that the core PPI, which excludes food and energy prices, rose 0.1 percent in November after falling 0.3 percent in October. The increase came in slightly below economist estimates of an increase of 0.2 percent.

INTERNATIONAL MARKET NEWS

Asian-Pacific benchmarks finished Tuesday session generally higher. The Nikkei climbed 1.6% on news that U.S. insurer American International Group will buy a Tokyo development property for $3.5 billion. Among other regional markets Sydney’s All Ordinaries rose 0.4%, South Korea’s Kospi gained 0.1%, while Hong Kong’s Hang Seng declined 0.4%.

European stocks traded in a tight range Tuesday to close steady as the downside trend was limited by upbeat U.S. economic data, higher opening on Wall Street and gains from mining and utility stocks. The German DAX 30 finished flat, the French CAC 40 added 0.1%, and London’s FTSE 100 was also flat.

OIL, METALS, CURRENCIES

Crude oil prices advanced ahead of petroleum report, expected to show a decrease in oil inventories. Light sweet crude for January delivery gained 31 cents to $57.80 a barrel on the Nymex. Heating oil advanced to $1.7180. Gasoline added a cent to $1.5350. Natural gas edged down to $14.040 per 1,000 cubic feet. London Brent climbed 32 cents to $56.43.

Gold traded mixed in European trading. In London gold closed at $502.10, down from $506.70 per troy ounce. In Zurich the precious metal rose to $507.30 from $506.95. In Hong Kong gold fell $2.65 to close at $505.95. Silver closed at $8.51, down from $8.55.

The U.S. dollar climbed against its major counterparts in European trading. The euro fell to $1.1883 from $1.2010. The dollar bought 116.82 yen, up from 115.97. The British pound traded at $1.7602, down from $1.7628.

EARNINGS NEWS

Morgan Stanley ((MWD)), brokerage services company, reported Q4 net income of $1.68 a share, up 49% from $1.09 a share in the year-earlier period on 28% revenue growth, topping analyst estimate of $1.08 a share.

Progress Software Corp ((PGRS)), software company, reported Q4 net income of 33 cents a share, up from 28 cents a share in the year-earlier period on 12% revenue growth, missing analyst estimate of 37 cents a share. Pro forma earnings were 38 cents a share. The company announced it would pay $68 million to buy Neon Systems.

Park Electrochemical Corp. ((PKE)), printed circuit boards manufacturer, reported Q3 earnings per share before special items of.41 cents, up from 21 cents in the same period last year. The company topped analysts’ expectations of 34 cents per share. Earnings per share were 48 cents up from 38 cents per share for the comparable period.

FactSet Research Systems ((FDS)), provider of financial and economic data, reported Q1 earnings of 38 cents a share, up from 33 cents a share in the year-ago period. On a non-GAAP basis, the company earned 38 cents a share. Revenue advanced 21.1%. The company beat the analysts’ estimates for earnings of 35 cents a share.

Park Electrochemical Corp. ((PKE)), printed circuit boards manufacturer, reported Q3 earnings per share before special items of.41 cents, up from 21 cents in the same period last year The company topped analysts’ expectations of 34 cents per share. Earnings per share were 48 cents up from 38 cents per share for the comparable period